Dell's Smartphone: Dumb on Arrival

It's the scent of failure, but I don't expect Michael Dell to notice it.

This morning's Wall Street Journal is reporting that the languishing computer manufacturer may be diving -- or perhaps belly flopping -- into the smartphone market as early as next month.

Sources are telling the paper that the company has produced prototypes, leaning on the mobile operating platforms of both Microsoft (Nasdaq: MSFT) and Google (Nasdaq: GOOG) .

If I were you, I wouldn't be waiting breathlessly for an iDell, a Dell Bell, or a DellBerry.

It's just not going to happen. The Journal also wrote that Dell was ready to reenter the portable media player market last summer. Those plans were apparently scrapped, and it's easy to see why. Dell failed in that space a few years earlier when the Dell DJ and Dell Ditty were rendered irrelevant in a world of iPods.

Why does Dell believe it has a chance in the high-end wireless market? Research In Motion (Nasdaq: RIMM) is in too deep and Apple (Nasdaq: AAPL) is way too cool.

I see the logic. If Dell can make a ripple in the flat-panel television market -- because, really, they're just oversized computer monitors -- why not smartphones? Aren't they just pocket-netbooks? And with Dell being an active seller to leading companies, it already has a thick enough Rolodex to creep into BlackBerry's corporate stronghold.

But in the end, it won't matter. If Dell doesn't bring something exciting and new to the table, it will whimper away with its tail between its legs. The more public the flop, the more damaging it is to a company that still needs to market its bread-and-butter wares to Corporate America.

Sure, Dell isn't exactly a generic vanilla PC vendor: It earned mega-style points with the purchase of Alienware three years ago. However, just as I would be shaking my head if PC leader Hewlett-Packard (NYSE: HPQ) was pondering a similar move, I can't discuss the birthing process without writing the obituary first.

Forget about the current players in an already overcrowded market for a moment. If the argument is that smartphones are small netbooks, what does Acer -- the netbook leader -- have to say about this? Oh, that's right. It's rolling out a smartphone in two weeks.

Why even bother with the belly flop, Dell? There's no open space in the busy pool for you to land.

Longtime Fool contributor Rick Munarriz has nothing but fond memories of his last Dell computer, but it was his last Dell computer. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has adisclosure policy.

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Dell is supposedly looking to stick its hand in the already overstuffed smartphone cookie jar, planning devices based on both the Google Android operating system and Microsoft's Windows Mobile OS, possibly within the next month as February's Mobile World Congress in Barcelona creeps closer.

According to reports from The Wall Street Journal, Dell has been working on smartphone prototypes for more than a year. The prototypes include a device with a touch-screen keyboard, similar to the Apple iPhone, and another device with a full slide-out QWERTY keyboard, similar to the recently announced Palm Pre.

But the computer giant is joining the party a little too late to actually make a splash.

The smartphone market is already crowded, with the likes of BlackBerry, Apple and Palm jockeying for market share. Can Dell get into the market this late and be successful, while also offering innovative products? Probably not. Sure, Dell has been innovative in other facets of the high-tech biz, but when it comes to smartphones, establishing yourself as a major player in an overcrowded field seems more like a waste of time.

Here are five reasons Dell should pack up its toys and go home, before a smartphone flop blows up in its face.

1. You can't beat the Apple iPhone

Many have tried to dethrone the iPhone from its high perch as king of the touch-screen devices. The BlackBerry Storm has yet to reach the summit, and other competitors from the likes of Sprint, T-Mobile and more are still tackling the first hundred feet. Word is Dell is looking to build its own iPhone clone, a touch-screen smartphone that would rival Apple's consumer device darling. Fat chance, considering Apple managed to unload 2.4 million iPhone 3G models in just its first quarter. Success like that would take something more than a rip-off, and we doubt that Dell has what it takes.

2. Isn't Dell trying to save money?

Granted, smartphones are relatively inexpensive to manufacture, with the iPhone costing around $174 and the BlackBerry Storm costing about $203 per unit, according to a recent iSuppli report. And, oftentimes, smartphone margins are pretty high. But in this time of economic uncertainty, branching into a new market could work against Dell, especially when the company recently revealed a plan to cut $3 billion in operating expenses to combat slumping PC sales.

3. Remember what happened to the Axim?

Dell already tried to crack into the lucrative mobile device market with its Axim line of Windows Mobile-based PDAs. Dell's Axim Pocket PC play, an early iteration of a true smartphone, was short-lived, fizzling out about five years after it made its debut in 2002. The Axim family, which saw several models, was officially discontinued in April 2007 amidst declining sales of PDA form-factor devices, a similar fate suffered by Palm's original line of handhelds. The difference, however, is that Palm forged on, and forged on quickly, capturing early smartphone sales. Dell, on the other hand, let the Axim line die and left it dead for a while before going back to the drawing board. This much time out of the market could work against Dell as it tries to gain traction in a market it abandoned once already. Does any smartphone user want to hang their hat, or their data, on a device made by someone that has already failed in the market?

4. No one likes a Johnny-come-lately

You got to start somewhere, but unless Dell is bringing something new and innovative to the smartphone market, it shouldn't even bother. Of course, Dell hasn't officially made its smartphone intentions known or even confirmed that a smartphone is on its product road map. But if one is, it darn well better be good. If Dell builds a touch-screen, it's already been done. If Dell tries its hand at a 3G device, it's been done ad nauseam. Is there really anything new that Dell can add that hasn't been done already or isn't currently under development by market masters Research In Motion (RIM) Ltd., Apple or a host of others that want their piece of the smartphone pie? Doubtful.

5. Dude, you're gettin' a Dell

Dell has become somewhat notorious for its customer service, or lack thereof. Just this month, Dell reached a $3.85 million settlement with 46 states that complained of customer service abuses by the company. In a statement, Connecticut Attorney General Richard Blumenthal called Dell's abuses "significant," noting "customers faced unacceptable obstacles obtaining warranty service on their Dell computers and others said they never received promised rebates.

"Dell must hit delete and then reprogram and restart customer relations by keeping all its promises. More than the money, this agreement provides profoundly important business practice reforms," Blumenthal continued.

Dell, however, said the issues brought in the legal settlement affected only a "small percentage" of customers, and many of the business practices raised in the complaint had been eliminated by the computer manufacturer before the settlement.

Still, that wasn't the first time Dell was in hot water for shady practices. In May 2008, a New York State Supreme Court Judge said Dell was running a classic bait-and-switch scheme and denying customers promised deals. "Dell has engaged in repeated misleading, deceptive and unlawful business conduct, including false and deceptive advertising of financing promotions and the terms of warranties, fraudulent, misleading and deceptive practices in credit financing, and failure to provide warranty service and rebates," the judge wrote.

Lawsuits based around customer service issues aren't too enticing to the smartphone-buying public, which is always wary of someone trying to pull a fast one. If Dell expects to succeed in the smartphone market, it had better keep everything above board, or the initiative will go bust before it begins.

Gota new Itouch as an updated version of my 3 year old 8 gig nano. Compared to a 2 1/2 year old Palm OS Treo 700P, the G2 32G sucks except for memory. The Treo is better with streaming audio and video. It may not be wide screen, but has better resolution. It can generate native Excel and Word documents. It is capable of composition of long Emails an blogging. The Itouch/ Iphone capacitance sensitive keyboard is useless in climates requiring gloves.

Enterprise ready my tail end! If I had a nickel for every manager with an Iphone I've heard complain about their phone, I could buy a nickel bag around the corner at Blue Sky Cafe in Oakland.

A Treo can use most integrated jukeboxes including Itunes, the Iphone & Itouch are tethered to it. Attempts to make it sync elsewhere were progrogrammed out in vers. 2.0 firmware. (Apple is becoming the new Microsoft of old and as mean spirited) Iphone is also tethered to GSM. Neither my security alarm or work cell have reliable reception in my home. The Safari browser though capable of passing off Flash to its integrated youtube player is not available to Radio app designers. This results in multiple players not competing on their merit, but buying off or begging popular radio stations for a direct URL. Iheart & Flycast being a cople of the biggest whores.

As a serious device Apple is NOT a contender for industrial users. To my thought, Dell needs to compete with Rim, Palm, Motorola, and Nokia. Being a serious Enterprise provider with a reliable product, Dell might have a chance